US Elasticities of Substitution and Factor-Augmentation at the Industry Level

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Abstract

We provide industry-level estimates of the elasticity of substitution (σ) between capital and labor in the US economy. We also estimate rates of factor-augmentation. Aggregate estimates are produced using the same data. Our empirical model comes from the first-order conditions associated with a CES production function. Our data represents 35 industries at roughly the 2-digit SIC level from 1960 to 2005 and covers the entire US economy. We find that aggregate US σ is less than unity and perhaps less than 0.5.The same is likely true for the large majority of individual industries. We find no consistent and/or systematic evidence that aggregate σ is either greater or less than the value-added share-weighted average of industry σs. Also, there is still considerable variation across the industry-level σ point estimates. Technical change in the aggregate appears to be net labor-augmenting. However, at the industry-level there is little evidence that the type of technical change is uniform
Original languageEnglish
JournalMacroeconomic Dynamics
StatePublished - Jun 2013

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